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FDI grinds out impressive results

FDI is also playing an important role in the fields of telecommunication, travel and particularly the stock market.

Vietnam attracted up to $4.4 billion of foreign direct investment (FDI) in the first five months of this year, exceeding the figure in the whole year of 2006 ($4.2 billion).

Some $3.7 billion came from 372 new projects, an increase of 25 per cent in the capital and 32.4 per cent in the project number over the same period last year.

Among the newly licensed projects, some are large-scale such as the Indian steel project in Ba Ria-Vung Tau province (more than $527 million), the luxury resort in Chan May economic zone in Thua Thien-Hue province ($276 million), the Thai-invested Kraf Vina paper project in Binh Duong province ($220 million), the Singaporean-invested Cai Mep seaport in Ba Ria-Vung Tau ($165 million), the US-invested Vinh Hoi resort ($110 million), and the Japanese-invested Xuong Rong reservoir in Thai Nguyen ($100 million). The increase in the number of large-scale projects in tourism and services marks a new move in FDI activities in Vietnam.

At the moment, more than 30 projects with total registered capital of $35 billion are lining-up for licences. Obviously, a strong FDI wave is coming into Vietnam confirming forecasts released by international experts more than six months ago when Vietnam was on the threshold of World Trade Organization membership.

According to the Ministry of Planning and Investment, around 7,300 FDI projects are operating in Vietnam with total registered capital of $65.6 billion, of which actual investment reaches $30.7 billion. Although Vietnam is receiving investment from 77 nations and territories, most of the money comes from big investors led by Singapore, followed by South Korea, Taiwan, Japan, Hong Kong, British Virgin Islands, the Netherlands, US, France and Malaysia. The top 10 investors are making up 80 per cent of the total project number, more than 79 per cent of total registered capital and 79 per cent of total actual investment.

According to official registration on May 16th, 2007, the US has funded 325 valid projects worth nearly $2.3 billion, being ranked at eighth position. Of the total, nearly 210 projects worth $1.1 billion are operating in the industrial and construction sectors (in which heavy industry accounts for the majority with 114 projects and $703 million), 85 projects are in service sector with $1.07 billion in registered capital (in which tourism-accommodation sectors have 11 projects worth $626 million) and the tiny remaining investment is in the agro-forestry-fishery sectors.

US firms make a splash

US-invested projects cover 33 out of 64 provinces and cities across Vietnam. However, both the project number and capital are concentrated in nine localities of Ba Ria-Vung Tau, Ho Chi Minh City, Dong Nai, Binh Duong, Hanoi, Danang, Hai Duong, Binh Dinh and offshore oil wells. Nevertheless, the implementation of US-invested projects are reported to be sluggish with actual investment of only around $718 million, mainly in Ho Chi Minh City, Dong Nai, Hai Duong, Binh Dinh and Hanoi.

In fact, US investment should be considered from a wider view. Many corporations from the US stepped into Vietnam via their affiliates, which were positioned in other nations and territories, such as Coca Cola, Procter & Gamble, Unocal, Conoco and Intel.

Phan Huu Thang, head of the Foreign Investment Agency under the Ministry of Planning and Investment, revealed that such investment had involved 74 projects with $2.4 billion of registered capital. The projects were mainly large-scale and mostly operating effectively, Thang said.

In general, US investment in Vietnam, including both direct and “indirect” money, has been poured in 400 projects totaling $4.7 billion, making the US the sixth largest investor in Vietnam. In fact, that the Vietnam-US Bilateral Trade Agreement (BTA) has been implemented for five years alongside with Vietnam’s WTO membership and the US awarding PNTR status to Vietnam has benefited not only Vietnamese enterprises but also FDI firms including US companies in the country.

Empowering the FDI sector

FDI is becoming a powerful economic sector in Vietnam due to the fast growth rate of FDI enterprises. According to the Vietnam General Statistics Office (GSO), the proportion of FDI enterprises’ contribution to the whole country’s industry production value (based on fixed price in 1994) rose from 35.4 per cent or 24 per cent if oil and gas is excluded, in 2000 to 39.6 per cent and 33.8 per cent respectively. Based on the actual price, the figure would be 41.3 per cent in 2000 and 45 per cent at present (oil and gas included).

At the moment, FDI enterprises are holding a significant place among nearly 20 key commodity sectors in Vietnam. As of quantity, besides covering 100 per cent of oil exploitation and seasoning powder, FDI enterprises now make up 90 per cent of assembled TV sets, bicycles and NaOH chemicals, 80 per cent of motorbikes, 60 per cent of assembled automobiles, nearly 50 per cent of knitwear, ready-made cloth, silk, soap, hygiene porcelain; ¼ cement and 1/6 roll steel.

The role of FDI is represented more clearly in export activities. The GSO revealed that exports by FDI enterprises were reported at $10.1 billion ($7.085 billion if crude oil is excluded) in the first five months of this year, accounting for 56 per cent of Vietnam’s total, much higher than that of the whole year of 2000 ($6.75 billion or 44.6 per cent of the nation’s total).

Besides, FDI is also playing an important role in the fields of telecommunication, travel and particularly the stock market. They are now holding up to 30 per cent of the local market’s capitalisation.

To boost the investment wave

However, Vietnamese leaders believe that FDI levels still lag behind that of many other nations in the world and has not fully represented the country’s potential as well as the potential of foreign partners, particularly the US.

There are many reasons, both objective and subjective, but the internal shortcomings of the economy is pointed to be the key. Weaknesses in infrastructure and the shortage of a trained work force are the biggest barriers.

The incomplete and unsynchronised market economic institutions and the sluggishness of administrative reform are also matters of concern that the country’s leaders must deal with.
The fact that Vietnam has yet to absorb much hi-tech and source technology to help accelerate the industrialisation and modernisation is also seen as another weak point in recent FDI activities.

In order to boost new investment waves and take greater advantage of FDI sources, the aforementioned deficiencies must be overcome as soon as possible. (VIR)

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